Category: Commercial Property

I am often asked by budding entrepreneurs to review the lease of a commercial premises which is part of a small business they are considering purchasing.

The entrepreneur, understandably, is trying to avoid as much avoidable expenditure as possible and wants the lease reviewed for a competitive fee.

I can do that, of course, without any difficulty but I have to explain that reviewing the lease alone is of extremely limited value.

Because most commercial leases emanate from a standard template or precedent lease which is widely used and accepted by solicitors in Ireland. Therefore any difficulties in the proposed acquisition of the business and taking on of the lease are unlikely to be contained within the terms, covenants, and conditions of the lease which are similar across commercial leases.

What are the dangers?

Potential problems are more likely to appear in relation to other issues outside the lease, issues like

Title-is there good legal title to the lease? Was the granting of the lease in the first instance in order?

Planning-are there any planning issues arising from the use of the premises? And any development carried out over the years, development that would have required planning permission?

Is the premises being used for a use permitted by the lease?

Rates/charges-are there any issues in respect of rates or other charges that may attach to the premises and is there any arrears for which the new occupant may become liable?

Is there a management company? Are there outstanding charges?

What condition is the premises in?

Are there any issues likely to arise from a fire safety perspective?

If the business is involved in food preparation and sales are the necessary plumbing, electrical, food preparation, refrigeration issues compliant with building regulations and any applicable food regulations?

If you are considering taking on a business in which there is a leased premises you are taking an avoidable, critical risk by not having all aspects of the lease assignment investigated.

This involves pre-lease enquiries about title, planning, rates, and so forth being properly investigated. None of these issues will be dealt with by a review of the lease alone.

Yes, it will cost you more money.

Yes, there may be no further issues.

But checking the lease on its own is of extremely limited value and if your finances cannot stretch to having the transaction carried out property, with the necessary checks and pre-lease enquiries carried out, you should seriously consider your investment.

Because you cannot afford it. You are too early and it is premature.

You might be as well going to a casino and putting all your money on red, or black.

Because the likelihood is that any problems that arise from your purchase of the business will not necessarily be contained in your lease, they will probably lie elsewhere, outside the 4 walls of the lease itself.

Are you a landlord or tenant of a commercial lease? Depending on when you entered into the lease it may provide for ‘upward only’ rent reviews.

Commercial leases from before February 2010 typically contained upward only rent reviews. This meant that the rent could only increase at each rent review date, and that is what the parties had signed up to in the first instance.

132.— (1) This section applies to a lease of land to be used wholly or partly for the purpose of carrying on a business.

(2) Subsection (1) shall not apply where—

(a) the lease concerned, or

(b) an agreement for such a lease,

is entered into prior to the commencement of this section.

(3) A provision in a lease to which this section applies which provides for the review of the rent payable under the lease shall be construed as providing that the rent payable following such review may be fixed at an amount which is less than, greater than or the same as the amount of rent payable immediately prior to the date on which the rent falls to be reviewed

(4) Subsection (3) shall apply—

(a) notwithstanding any provision to the contrary contained in the lease or in any agreement for the lease, and

(b) only as respects that part of the land demised by the lease in which business is permitted to be carried on under the terms of the lease.

The vitally important change is contained in subsection (3) which now permits the rent to stay the same or fall at rent review time. This effectively prohibits the use of ‘upward only’ rent review clauses in commercial leases from February 2010.

You will note, therefore, this significant difference between leases which were entered into prior to the Land and Conveyancing Law Reform Act 2009 and those signed after the commencement of this act.

Deed of variation

There is a significant consequence flowing from this act and the granting of a deed of variation between the parties after February 2010. Let me explain.

If the parties agree a deed of variation, which may deal with a reduction in the rent and other terms, it is possible that the granting of this deed will bring about a de facto surrender of the original lease.

The consequence that flows from this, if it occurs, is that the new lease cannot contain an enforceable upward only rent review clause and the landlord will have a less valuable property interest.

And you need to understand that the intentions of the parties when entering into the deed of variation are immaterial; the fact is that if the lease term is extended you are probably looking at a new interest in the land and you can rest assured you do not have 2 leases as the first one will be a deemed surrender.

Deemed surrender

How could this deemed surrender occur?

One of the ways this can happen is if one of the terms of the old lease which is varied/changed is the term of the lease. If the term is increased, for example, there is decided UK case law which holds that if a term is increased a new legal interest in the land comes into existence and the old one, the original lease, is deemed to have been surrendered.

Conclusion

The law surrounding land and interests in land can be complex and requires professional legal advice. Each case must be looked at on its own particular facts and circumstances.

However, one thing is clear: should you not obtain professional advice you run the risk of making a costly mistake that can greatly affect the value of the interest you hold, either as a landlord or tenant.

If you are leasing a commercial property you may encounter a ‘side letter’ in addition to the lease itself.

A side letter in such a situation is used by a landlord and tenant-as it is signed by both parties-to modify the terms of the lease itself, generally on a temporary basis. This would be done to confidentially vary the terms of the lease and prevent any knock on comparable consequences for the landlord from other tenants in a development.

An example of this would be a concession in relation to rent for a temporary period of time.

This concession would not be in the public domain as the rent might be if the lease was lodged in the Registry of Deeds or details registered with the Commercial Lease Register of the Property Services Regulatory Authority.

Some points to consider

The time period or special event which is to be covered by the side letter should be clear if the concession is to be temporary and for the particular lessee

If the lease itself contains an ‘entire agreement’ clause then the side letter should be mentioned in the entire agreement statement

If the side letter is agreed and granted at a different time from the lease itself then there should be some consideration given for the side letter, even a nominal sum

The landlord needs to be careful that the granting of the side letter will not inadvertently let a guarantor off the hook

Is this side letter to be binding on a future landlord if the sells the building? Is the side letter to be personal to the existing lessee and not assignable to a new tenant?

The side letter will be terminated if any provisions of the lease are breached-for example, late payment of rent

A problem may arise if the breach of the lease leads to the side letter being set aside as this may amount to a penalty for the tenant which is disproportionate to the loss suffered by the landlord for the breach. If that is the case the side letter may be unenforceable if challenged.

Provided the penalty is proportionate the side letter is likely to be enforceable, however.

Side letters will usually bind a landlord’s successor in title and should, therefore, be disclosed to a any future purchaser. For this reason any side letter should be kept with the lease so that it is disclosed on sale. If it is not disclosed a future purchaser will probably succeed in a claim for misrepresentation and the cost of complying with what has been agreed in the letter.

Are you concerned about outstanding rates not being paid by the occupier, and being stuck with a charge on your property?

The best way for you to avoid any liability for commercial rates is if your occupier pays the rates.

But there is another safeguard for you to avoid liability.

Let me explain:

Section 32(4) of the Local Government Act, 2014 states:

(4) The owner of relevant property shall be liable for a charge equivalent to no more than 2 years of the outstanding rates due from the previous occupier or occupiers where—

(a) the owner has not notified the rating authority in writing of a transfer of relevant property or an interest in relevant property in accordance with subsection (2)(a), and

(b) the requirements of subsection (2)(b) have not been met.

This means that the property owner can avoid liability for an occupier’s rates provided he complies with subsection 2(a) which obliges the property owner to notify the local authority within two weeks of a transfer of the property.

Provided the property owner does this he should be free of any liability for an occupier’s unpaid rates.

Section 2 states:

(2) Where relevant property, or an interest in relevant property, is transferred from one person to another person in circumstances that render that other person liable for rates on the property so transferred, then—

(a) it shall be the duty of the owner of the property (being the owner of the property prior to transfer) or such other person as the owner has authorised in writing to act on his or her behalf to notify, in writing, the rating authority in whose functional area the property is situated of the transfer not later than 2 weeks after the date of the transfer, and

(b) it shall be the duty of the person transferring the property being either the occupier or the owner, to discharge all rates for which he or she is liable for at the date of the transfer of the property or of an interest in it.

So, while it is still best if the tenant actually pays the rates, provided you, as property owner, notifies the local authority within 2 weeks of any transfer/assignment/surrender of the lease you should be clear of any liability.

Regardless of how the property ends up back in the landlord’s possession-for example surrender or eviction- the safest approach is to send the notice to the local authority.

Some local authorities are requesting that these notices be sent in on a prescribed form, but a letter should suffice.

Most leases will have a restriction on alienation-assignment or sub-letting- contained in the lease. This is to allow the landlord to protect his investment by ensuring that the quality of his tenant is high.

Because any tenant can ultimately obtain security of tenure in the premises. And if he is a poor tenant and the landlord is forced to enforce the covenants in the lease it is going to cost time, money, inconvenience, and possible diminish the value of the landlord’s property.

However, the landlord will also need to consider how restrictive the alienation clause is, because if it is unduly restrictive it will have an adverse effect on the rent he can achieve. Quite frankly, less tenants will be prepared to take it on if they think that they cannot assign or sub-let it in the future, if necessary.

The tenant will need to consider his business, how restrictive the covenant is, and the premises itself.

Restrictions on Alienation

All commercial leases will contain a restriction on the assignment or sub-letting of the premises without the landlord’s consent, and an absolute prohibition on letting part of the premises.

Put simply, the landlord is entitled to ensure the property is not handed over to an undesirable who will devalue the landlord’s property.

However, the landlord is not entitled to unreasonably withhold his consent to alienation. The question of what is “reasonable” is a thorny one, though.

There is no statutory definition of a reasonable refusal, therefore it is a question of fact and circumstances in each particular case. If a tenant is not happy with the landlord’s decision, he can go to Court to seek a declaration that the consent is being withheld unreasonably and allowing the assignment/sub-letting to go ahead without the consent.

The case of International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] provides a good summary of the principles to apply in determining whether the landlord’s consent has been unreasonably withheld or not.

Many leases will also contain a pre-emption clause. This gives the landlord first refusal on any assignment.

He may also have the right to match any 3rd party offer.

Break Clauses

Tenants will look for a break clause in the lease. This will allow for circumstances changing in the future.

Generally, the breaks clause would be exercisable at the time of the 1st rent review, but this is entirely a matter for negotiation between the parties at the outset.

Most break clauses will only be exercisable when the tenant has complied with all provisions in the lease.

Assignment of Lease

The existing tenant must ensure appropriate references-trade and bank-are obtained and submitted to the landlord, along with the request for consent to assign.

The existing tenant will also have to be released from his personal guarantee, if he has given one.

The new tenant’s solicitor must make the usual conveyancing enquires about title, planning permission, mortgage on the property, and the usual pre-lease enquiries.

Service charges, and any other annual charges, will have to be apportioned between new and existing tenant.

The landlord, and his solicitor, will be anxious to ensure that the new assignee is as satisfactory as the existing one.

Sub-Letting

The existing tenant will be the landlord for the sub-tenant and he will be granting a sub-lease to the sub-tenant. He will need to get references from the sub-tenant to give to the head landlord, and apply for the head landlord’s consent to the sub-letting.

The sub-tenant, in addition to ensuring the proposed sub-lease is satisfactory, will need to ensure that the head landlord’s consent is given for the sub-letting.

The head landlord’s position is not affected from a legal perspective as he will still have his original tenant on the hook as that tenant will remain contractually liable to the landlord.

Partial Assignment or Sub-Letting

Most modern commercial leases will prohibit partial assignment or sub-letting.

Conclusion

Hopefully, you will see from the above that entering into a lease can be a complex matter which should not be undertaken without professional advice.

Quite frankly, it is easy to sign on the dotted line of a commercial agreement. Especially when you are starting a new business about which you are understandably excited.

But it is foolish to do so when you run the risk of running into costly difficulties later on, and find that you cannot assign or sub-let or you are staring at an eye watering rent increase through the rent review.

Over the last few years, since the property crash at the end of the Celtic Tiger years, quite a few commercial property owners were just happy to get their commercial premises let.

Any rent is better than an empty commercial unit or office.

Many of the leases granted then were on initially favourable terms for tenants, simply to get them let.

However, many of these leases are coming up to their first rent review, typically 5 years after commencement. The big problem for small business owners is that these rent reviews provide for “market rental value” which is causing a nasty shock, and in some cases unaffordable rents, for small business owners.

Because in some cases they are seeing their rents double, or more.

What is the legal position?

Is there anything you can do about it?

How does a rent review work?

Let’s take a look.

The purpose of a rent review clause is

to protect the value of the landlord’s property

to reflect the changing value of the property during the term of the lease.

What will normally happen is the landlord will serve a notice on the tenant seeking a significnatloy higher rent. Generally, time is not of the essence in relation to the service of notices by either landlord or tenant.

The tenant should then write back indicating his disagreement and asking what is the basis for the figure sought, and how was it arrived at.

Landlord and tenant will then instruct representatives such as valuers/surveyors/auctioneers to engage with the other side and attempt to agree the new rent.

Reviewing the Rent

The rent review clause will normally provide for the rent to be reviewed by an independent expert if the landlord and tenant cannot agree on the new rent. This independent expert will either act as an arbitrator or expert; in practice, the difference is not hugely significant.

Generally, the appointment of the expert will be the prerogative of the landlord if the landlord and tenant cannot agree on who to appoint.

If the landlord fails to make the nomination the tenant may be able to nominate, or the rent review clause may provide for appointment by the President of a professional body such as the Law Society or the professional bodies for Chartered Surveyors or Auctioneers/Valuers.

If there is a delay in agreeing the rent the tenant will be liable for the back-dated rent, plus interest at a “base rate” provided for in the lease.

The basis for reviewing the rent will almost certainly be to “current market rent” or “market rent”.

And may even help you get more out of your professional advisor and better bang for your buck.

Let’s get started.

Problem numero uno:

You Don’t Listen

I don’t have all the answers, and I don’t know everything.

But to provide sound professional advice based on logic, professional training, careful analysis, and many years of experience in the crucible of business, and dare I say life, and to have the advice consistently ignored makes life seem too short.

Eventually our relationship must end, and the sooner the better-for both of us.

A closely related problem- the client who listens to everyone-the guy in the pub, the car wash attendant, the lady in the coffee shop, that nice girl in Tesco-and comes back to me and makes it perfectly clear that they are prepared to go a bit of the road with everyone.

If this what you want to do that is a matter for yourself. But I’m not the man for you.

The second type of problem that drives me nuts is:

2. You Want to Debate With the Other Party and Show Them a Thing or Two

This person personifies the difference between an amateur and professional.

The professional will generally only write a letter or take a step of action if it is likely to advance the position-even marginally-or because it is necessary to make a position clear.

An amateur on the other hand is happy to attempt to score points, debate, show how clever he is, get a dig in to the other party without much or any focus on the main prize: a successful outcome or resolution to the problem.

Debating is fun. But engaging solicitors to pursue an argument or debate is not the smartest use of your money and my time.

3. You Don’t Respect My Time

As a solicitor I sell chunks of my time and expertise. And there is only a limited and finite amount of time in each day.

So it can be a real problem if you just walk into my office unannounced or repeatedly ring me up on the phone to shoot the breeze about the same problem which we discussed yesterday and the day before and the day before that.

Trust me: I will find out very quickly what your problem is. And I will let you know whether I can help you or not.

But if I can? Let me get on with it-it will almost certainly be best for both of us.

A related problem, one which occurs before you become a client, is one I face on a daily basis. It has its roots in the fact that I provide a lot of useful, free information in a number or areas:

I get a large number of emails entitled “advice please”, and the emailer will set out their problem, send a huge amount of related documentation such as correspondence/contract of employment, and look for free advice.

Many people assume that I provide a free advice service and am a cross between Citizens’ Information and NERA.

In order to advise properly I need to ascertain all the facts, read the supporting documentation related to your issue, almost certainly raise further queries with you to elicit further information, perhaps carry out some research, formulate a considered, professional response, type it out and send it to you.

This takes time, as I am sure you will recognise, and if I get it wrong? You can sue me which will impact on my professional indemnity insurance.

So, I charge for my advice/professional opinion.

I think this is fair and reasonable.

Conclusion

To get the most out of your professional advisor, no matter what sphere of activity, do yourself a favour and listen to them, and give serious consideration to their advice. This will ensure that you get good value for your investment.

And buying property from a mortgagee in possession or receiver acting on his behalf is becoming more commonplace in Ireland.

Regardless of whether you buy at an Allsop’s type auction or by private treaty there are a few unique features of buying from a receiver or mortgagee in possession.

Some of these unique aspects could, quite frankly, cost you a lot of money.

Let’s take a look at them.

The Contract for Sale

The standard Law Society of Ireland contract for sale will be heavily amended and/or qualified by the special conditions inserted by the solicitor acting for the mortgagee in possession. This is to reflect the limited information and knowledge of the lender or receiver about things like:

Planning

Identity

Notices received by the legal owner/previous occupant

The services to the property.

The contract for sale therefore will have a special condition setting out the limited knowledge of the receiver about the property and you are purchasing in full knowledge that no warranties are being made in respect of these issues.

Standard pre-contract enquiries that a purchasing solicitor would make will not be replied to in a receiver’s sale and the purchaser and his client will need to be careful to make their own enquiries as best they can.

The Purchaser’s solicitor will generally be furnished with replies to the standard Objections and Requisitions on title along with the contract for sale. However this is as far as the receiver will go and further enquiries will not be entertained or answered.

The receiver sale may well provide a great opportunity to purchase a good value property, but it will be very much on a “take it or leave it, here’s the deal” basis.

In an ordinary, “non receiver” sale there may be some negotiation between the parties about certain conditions of the contract. This is not the case with a receiver sale and conditions tend to be non-negotiable.

The Receiver

A receiver is appointed by the lender by deed of appointment on foot of the mortgage document. The receiver will act as agent for the legal owner of the property and his powers will be set out

Because the receiver acts as agent of the legal owner he does not have the same powers as the mortgagee in possession. The most important power he does not have is the power to sell the property free of all interests, rights, and estates in respect of which the mortgage has priority.

Therefore, if any charges, judgments, or mortgages are registered after the registration of the mortgage and charge the receiver may give possession of the property to the mortgagee in possession to complete the sale.

When the mortgagee in possession, that is the lender, completes the sale he effectively wipes out those burdens/encumbrances by “overreaching” and sells the property free and clear of the burdens.

Or maybe you are being offered a licence? And you’re not sure what the difference is?

Hopefully this guide will answer most of your questions.

Tenancies/Leases

Tenancies or leases fall into two broad categories:

A tenancy for a fixed term

A tenancy from year to year or other period of time.

Fixed Term Tenancies

A tenancy can be created for any fixed term of any duration. Once the fixed term is arrived at the interest of the tenant in the property ends and the lessor is entitled to possession.

Periodic Tenancies

A periodic tenancy runs for a period of time which can be a week, month, year, etc. It automatically renews on the expiry of the initial period and will continue indefinitely until the lessor serves a notice to quit.

The notice periods are set by statute and common law. These tenancies can be created expressly or by implication.

Tenancy at Will

A tenancy at will is a common law concept and involves the person being in possession of the property for an indefinite period with the consent of the owner. This type of tenancy can be terminated by either party at any time.

It is worth noting that the relationship of landlord and tenant does exist but the tenant has no interest in the land which he can transfer to third parties. His tenure is ‘personal’ between himself and the landlord.

This type of tenancy is not covered by landlord and tenancy legislation and is deemed to end one year after it commences unless determined beforehand.

Tenancy at Sufferance

This type of tenancy arises by operation of law and occurs when a tenant is in possession at the end of the lease without the landlord’s consent and without paying rent. However this tenant is not a trespasser as his original entry into possession was lawful.

A tenant at sufferance has no interest in the land and is not in a landlord/tenant relationship; in fact, he is only called a ‘tenant’ because his original entry into possession was lawful.

Statutory Tenancy

A statutory tenancy arises under various pieces of legislation such as the Housing (Private Rented Dwellings) Act, 1982 and the Landlord and Tenant (Amendment) Act, 1980.

Part 4 of the Residential Tenancies Act, 2004also provides relief to tenants who have been in occupation of a dwelling under a tenancy for a continuous period of 6 months.

Temporary Convenience Lettings

These lettings can arise in residential or commercial situations. If they are genuinely for the temporary convenience of the owner of the property they fall outside the statutory protections afforded to tenants under landlord and tenant legislation.

In such commercial lettings, it is essential that it is stated in the letting agreement that the nature of the temporary convenience is set out. There is no legal definition of ‘temporary convenience’ but it must be for the bona fide temporary necessity of the landlord.

Otherwise statutory protection and controls will be available to the tenant.

There is no limit on the duration of such lettings.

Summary

There is a wide range of tenancies which can exist for both commercial and residential properties.

The Land And Conveyancing Law Reform Act 2009 provides that the relationship of landlord and tenant does not now arise in relation to a tenancy at will or tenancy at sufferance.

Property Licences

Property licences can often be confused with leases.

There are significant differences between a licence and a lease when it comes to the letting or use of property.

A licence, unlike a lease, does not transfer any interest or estate in the land to the licensee

Should a dispute arise as to whether a user of a premises has a licence or a lease, a Court will look at what the parties intended, not what they say afterwards.

So, if an agreement has all the requirements of a tenancy/lease, the parties cannot insist afterwards that they only created a license.

Courts will, in the event of a dispute, look at the relationship between the parties objectively and if the agreement satisfied all the characteristics of a tenancy, decide that the agreement is a lease.

Types of Licence

There are a number of different types of licence including:

A bare licence which is a mere personal permission. As it is personal to the licensee there is no interest that (s)he can transfer to a third party.

A licence coupled with an interest. This type of licence can be transferred to third parties. This might arise where a person is given permission to enter another’s land to cut down and remove trees or shoot game.

A contractual licence-this licence is created by a contract and the power to revoke the licence will be contained in the terms of the contract. There is no proprietary interest in the land though. A licensor can be prevented from revoking the licence which is not in accordance with the contract underpinning the licence.

An estoppel licence. This will arise where a person who holds a licence relating to land sells an interest in that land to a third party who acts in good faith. The licensor in this situation may be prevented from revoking the licence as against the new purchaser and an estoppel licence may arise where the licensor is ‘estopped’ from revoking the licence.

Characteristics of a Licence

The main characteristics of a licence and distinguishing features from a lease include:

There is no interest in land

It may be revocable

The licensee does not enjoy exclusive possession of the land

The licensee occupies the land with the consent of the licensor

The rights in the license are personal to the licensee

The licensee agrees with the licensor to co-operate in relation to the control and management of the property.

Property owners or intending tenants need to be aware that entering legal relations which involve occupancy of a premises and on-going payments that they should be clear in advance as to what the relationship is.

They would also be well advised to speak to their solicitor.
By Terry GorryGoogle+

Landlord and tenant disputes are on the rise for obvious reasons with the downturn in the economy and landlords being faced with the choice of trying to recover outstanding rent or additionally trying to recover their premises and get the tenant out.

Generally the failure to pay rent by the tenant will be a breach of a covenant of the lease leading to a right accruing to the landlord for a straightforward breach of contract and the normal remedies available to the landlord when this occurs.

The legal proceedings that a landlord will take will depend on the amount of rent owed-if it is less than €6,348.69 it will be by way of Civil Summons in the District Court; if it is between that figure and less than €38,092.14 it will be by Civil Bill in the Circuit Court. (Note that these jurisdictional amounts have changed; the District Court has a limit now of €15,000 and the Circuit Court up to €75,000).

Higher than that and you will find yourself the subject of High Court proceedings.

Recovery of Premises

Most commercial leases will have a covenant providing for the right to recover possession of the premises when there is a breach of a covenant of the lease.

Notice To Quit

If a lease has just expired, that is the time is up, the landlord needs to serve a Notice To Quit giving whatever period of notice is stipulated in the lease itself.

After the service of the Notice To Quit the landlord should mark any rent received as “mesne rates only” as not to do so could be seen as a waiving of the Notice by the landlord.

Forfeiture

Forfeiture procedure is appropriate where the landlord wants to get the tenant out before the term of the lease is up.

He will want to do so if the rent is overdue and not being paid and the landlord thinks that he is better off trying to let the premises to someone else.

To do this the landlord must be sure that the lease makes provision for forfeiture in the event of rent not being paid or whatever other breach of covenant the landlord is alleging.

Most leases will contain such a covenant; if yours does not it will provide for forfeiture for breach of a condition of the lease.

In order to use the forfeiture procedure the landlord must first, by law, give the tenant the opportunity to remedy whatever breach has occurred.

Firstly the landlord will need to serve a Notice of Forfeiture on the tenant which will set out the alleged breach and the time within which it must be put right or that the landlord will re-enter the premises.

This is called a Section 14 notice as the requirement arises from section 14 of the Conveyancing Act 1881.

If the remedy is not forthcoming and the breach is not sorted out then the landlord can re-enter the premises peaceably-it is important that to note that anything other than the minimum damage can lead to a criminal offence being caused by the landlord.

If resistance is offered by the tenant then it would be very difficult for a landlord to enter peaceably and should withdraw.

Ejectment Civil Bill on Title Based on Forfeiture

If the landlord cannot take the premises peaceably he will need to go the Court route and it is by way of Ejectment Civil Bill on Title based on forfeiture.

Be warned that this is a slow process and the Courts have traditionally given a fair degree of latitude to tenants giving them more time to put things right.

Tenant Relief

Conveyancing Act 1881, section 14(2), provides some relief for the tenant provided that the landlord has not re-entered and the tenant has put matters right by paying the rent or whatever breach is alleged.

The courts have traditionally been very fair with tenants in these matters and a tenant who has paid up, even late, will be in a strong position to get this statutory relief from the Court.

Ejectment Civil Bill for Overholding

This procedure is used after the service of a Notice To Quit or where the original lease has expired and the tenant remains in possession.

Commercial Landlord and Tenant Issues in Insolvency

Liquidation

In a liquidation situation, any rental arrears which arose prior to the liquidation will rank as unsecured claims and participate in any dividend on a pro rata basis with other unsecured creditors.

Rent arising where the liquidator occupies the premises to wind up the failed company is deemed to be an expense of the liquidation and will rank, along with the costs of the liquidation, above all creditor claims.

Receivership

Rent accrued prior to the appointment of the receiver will rank as an unsecured debt.

Rent due during the period of receivership, the receiver is obliged to pay the rent as a priority expense of the receivership.

Examinership

Theoretically, rent accrued during examinership should be paid to the landlord. However, proceedings cannot be taken against a company when it is in examinership so it would be very difficult to enforce the payment of rent.

Repudiation of leases during examinership

Section 20(1) of the Companies (Amendment) Act 1990 allows the repudiation of any contracts of a company in examinership.

This includes leases and a Court has jurisdiction to approve the repudiation of a lease of a company in examinership. This is a discretionary power which will be exercised in each case in the particular circumstances of the case.

Disclaiming a lease

Section 290 of the Companies Act 1963 allows a liquidator to apply to Court for an order for disclaimer of onerous property or contracts.

The liquidator has 12 months within which to disclaim a lease and it is a slow process. The landlord will be able to claim as an unsecured creditor for damages as a result of the disclaimer.

However, whether there is going to be a dividend available to unsecured creditors or not will depend on the circumstances of each case.

The Entitlement to a New Lease

The Landlord and Tenant Act 1980 which was amended byLandlord and Tenant Act 1994 provide statutory entitlements to tenants in a landlord/tenant relationship.

The reliefs apply where the property that is the subject of the agreement is a tenement which is a legal description but has been interpreted fairly generously. It includes buildings which are not permanent and can include sheds erected without planning permission.

To qualify for the statutory entitlements the main purpose/use must attach to the buildings. If there is land involved then the land must be subsidiary and ancillary to the main use of the buildings.

Section 16 ofLandlord and Tenant Act 1980 provides that a tenant will be entitled to a new tenancy at the expiry of his existing lease if he can prove one of the following equities

Business equity-if the tenant was in occupation for 5 years continuously and was using the premises/tenement for business purposes (this period used to be 3 years); temporary breaks can be disregarded by the courts. The five year period only applies to tenancies/leases which commence after 10 August 1994 and the tenant must occupy the tenement for the entire period

Long possession equity-this applies to both residential and business property and states that if the person was in occupation for 20 years then he/she was entitled to a new lease

Improvements equity-this also applies to both residential and commercial property and states that if the tenant would be entitled to compensation for improvements and they accounted for half or more than half of the letting value of the tenement when the notice of intention to claim statutory relief, then the tenant has an improvements equity

Terms of a new tenancy

These terms are to be agreed between landlord and tenant and failing that will be fixed by the court. If the tenant is entitled to a new lease based on business equity the new term shall be fixed at 20 years or such time as the tenant may nominate, provided it is over 5 years.

If the right to a new tenancy is based on long possession or improvements the term of the new tenancy will be 35 years or a lesser term that the tenant can nominate.

Rent

This will be fixed by the court at open market value if the landlord and tenant can not agree on a new rent.

Restrictions on a right to a new tenancy

Section 85 of the act prevented any provision contracting out of the Act.

However this was changed re the tenant of an office premises who could contract out of his right if he took independent legal advice and signed a renunciation under sect 4of his right and this had to be done before the commencement of the tenancy.

Other restrictions include the situation where the tenant is in breach of the lease in respect of payment of rent.

Furthermore where the landlord intends to pull the building down in order to redevelop the building/site then he can refuse to grant a new tenancy.

However if this occurs and the tenant would have been entitled to a new tenancy otherwise, then the tenant is entitled to disturbance compensation which is a right of both residential and commercial tenants.

How to claim a new tenancy

The forms required are set out in Landlord and Tenant Regulations, 1980. This notice must be served before the end of the tenancy or within 3 months of the end. (The courts have discretion to extend these time limits in limited circumstances)

Compensation for improvements

This is available to both residential and business premises. Where a tenant quits a tenement because of the termination of the tenancy he is entitled to be paid compensation for every improvement by him or any predecessors in title which adds to the letting value of the premises.

However he will not be entitled to compensation if he has surrendered the lease or the termination is for non-payment of rent.

Improvement notice

Where a tenant proposes to make improvements to the tenement he may serve an improvement notice on his landlord.

If the latter ignores it then the tenant can go ahead with the works and is entitled to compensation. However the landlord can then himself serve an improvement undertaking notice on the tenant and execute the works himself.

Or he can object to the improvement notice and the tenant can then withdraw his notice or apply to court which can allow the tenant to make the improvement or reject his claim based on the fact that he has not been in occupation for 5 years and is consequently not entitled to a new lease.

Any covenants in the lease which prohibit the selling of the building or the change of use of the building will be interpreted as only prohibiting this to occur without the landlord’s consent, and this consent must not be unreasonably withheld.

A similar interpretation will apply to any covenant in the lease prohibiting the making of improvements.

Update

The Civil Law Act 2008 has made some changes to Landlord and Tenant legislation. Previously only the occupier of an office lease could contract out of his right to a new lease as outlined above.

The Civil Law Act 2008 now allows any business user to renounce his right and furthermore allows him to renounce not just prior to the commencement of the lease but at any time. He must still receive independent legal advice.

Termination of Commercial Leases

The most common ways to terminate or end a lease are

1) Notice to quit

2) Forfeiture

Since the Residential Tenancies Act, 2004 lays down the procedure for the vast majority of residential tenancies Notice to Quit and Forfeiture now only apply to commercial tenancies.

You only use a Notice to Quit procedure where the tenant remains in possession after the expiry of the agreed term and continues to pay rent. This tenant is said to be overholding.

Where the landlord wishes to end the tenancy prior to the end of the agreed term, the appropriate procedure is Forfeiture.

Notice to Quit

Notice to quit is the most common procedure to recover the premises where the tenant is overholding.

Anybody who has received prior express authorisation may serve the notice to quit.

Where the landlord is not serving the notice to quit himself it is prudent to arrange prior written authority to be given to the server. This authority can not be given retrospectively.

There is no set form for the notice to quit but it must contain a clear and unambiguous intention to end the tenancy.

A description of the premises must be given and it must be addressed to ‘the tenant and all other persons in occupation’.

It need not be signed but it is prudent to do so.

Length of Notice

Firstly check the written agreement to see is there an agreed procedure. If not the statutory minimum is 4 weeks and the notice must end on a gale day (this is the point when one period ends and another begins).

The crucial question is how is the rent reserved in the lease (this is not the same as how is the rent paid).

A monthly tenancy requires one month’s notice expiring on a gale day.

A quarterly tenancy requires 3 months notice and this should expire on a gale day.

A tenancy from year to year requires 183 days notice expiring on the anniversary of the tenancy.

Personal service is best and in the case of a limited company on the registered office of the company.

Waiver of notice

You will be deemed to have waived the notice to quit if you

Serve another notice

Demand the rent

Accept the rent which falls due after the end of the notice period.

Landlords are advised therefore not to accept rent after the end of the notice to quit has expired.

Care should be taken to check the lease to see if any provision has been made for a specific method of terminating the tenancy.

Forfeiture

This is only appropriate where the term of the lease is still running. But a landlord has no right to terminate a lease prematurely unless the tenant has been in breach of one or more of it’s terms.

A landlord also loses the right to forfeiture if he does not follow certain statutory procedures which give the tenant a reasonable opportunity to remedy any breach.

It is extremely difficult in practice to forfeit a lease, especially if the parties are in court for the first time.

Grounds for forfeiture

The 3 main grounds for forfeiture are

1) Disclaimer by the tenant of the landlord’s title

2) Re-entry of ejectment where there has been a breach of a condition in the lease

3) Re-entry of ejectment where there has been a breach of a covenant which provides for re-entry for that breach.

Breach of condition of lease

Breach of a condition of a lease gives the landlord an inherent right to re-enter.

But the landlord must be careful to distinguish between a condition and a covenant.

Breach of covenant in a lease

A breach of covenant in a lease will only give rise to a right to re-enter if the covenant broken has a proviso for re-entry.

Before forfeiture can take place a ‘section 14’ notice must be served unless forfeiture is occurring for non payment of rent. In this case there is no need for a ‘section 14’ notice.

This notice calls upon the tenant to remedy the breach within a reasonable time.

If the notice is served and the time specified in the notice has elapsed without the remedy of the breach, a demand is again made for possession and the landlord may re-enter if it can be done without the use of force. There is a statutory prohibition on the use of force.

Ejectment civil bill on title

If the landlord can not re-enter peaceably the landlord’s remedy is to issue an ejectment civil bill and seek an order for possession in court.

Relief against forfeiture

There are 2 reliefs for the tenant to prevent forfeiture of the lease-statutory and equitable.

Statutory

Section 14(2) Conveyancing Act 1881 allows the tenant to apply to court for relief-it is then at the discretion of the court and there are no fixed rules for the court in exercising its discretion.

A sub-lessee will get statutory relief and his sub-lease will continue as if the superior landlord was the immediate lessor.

The Landlord and Tenant(Ground Rents) Act 1978 provides that forfeiture can not occur by reason of failure to pay ground rent in the case of a house where the tenant is entitled to buy out the freehold.

In general there is no statutory relief where the landlord forfeits the lease for non-payment of rent.

Equitable

Courts may use its equitable discretion to grant relief to the tenant, even for non-payment of rent, if it would appear to be just to do so.

Courts lean against forfeiture for non payment of rent and tend to give tenant’s plenty of opportunity to pay up. But it will look at the conduct of the parties prior to going to court.

Effluxion of time

Where the term of a lease is up there is no need to serve a notice. A letter prior prior to the end of term pointing up the end of the term and demanding possession will suffice.

Court Order

The court has jurisdiction under certain legislation to terminate a tenancy.

Exercise of an option (break clauses) in a lease

Commercial leases often have break clauses entitling either party to terminate prematurely.

Legal proceedings

It may still prove necessary to go to court, even after ending the lease by one of the methods outlined above.

Ejectment Civil Bill on Title Based on Forfeiture

The landlord’s claim is based on the fact that the tenancy has ended by forfeiture and the tenant has no right to retain possession. This is a very common procedure, especially where non-payment of rent has occurred.

The landlord may need to go to court a number of times to establish a poor track record of the tenant as the court is very reluctant to grant possession first time for non payment of rent.

Ejectment for non payment of rent

This is based on Deasy’s Act,1860. The huge disadvantage is that the landlord must wait until one years rent is due-not very popular method for this reason.

Ejectment Civil Bill for overholding

This is used following service of a notice to quit or where the original lease has ended and the tenant remains in possession.

From the tenant’s perspective under the Landlord and Tenant Act 1980 he must now serve notice to seek relief, that is to seek a renewal of the lease) within a certain period following service of the notice to quit.
By Terry GorryGoogle+

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